International Airlines Group is to to buy Lufthansa's British unit bmi to boost growth prospects at its Heathrow hub at a time when airline profits are falling due to higher fuel costs.

IAG - tha parent of British Airways and Iberia - this morning reported a 31 pc fall in third-quarter profits.

The outcome was better than expected and outperformed peers, with analysts expecting a deal for bmi to help trading further.

IAG said it had reached an agreement in principle for the sale of bmi with Lufthansa with any deal subject to due diligence and regulatory clearances. The company said it expects the purchase agreement to be signed in the coming weeks and for a transaction to be completed in the first quarter of 2012. IAG, Europe's second-biggest airline group by value behind Lufthansa , said operating profit in the three months to the end of September fell to 363m euros from last year's third-quarter profit of 528m euros. Revenues rose 2.2 pc to 4.49bn euros, helped by a 3.5 pc rise in passenger traffic during the period. IAG's fuel bill rose by a qaurter to 1.39 bn euros during the quarter. The company had been expected to report a third-quarter operating profit of 350m euros, according to the consensus analyst forecast supplied by IAG. "We are confident of a higher level of profitability in the fourth quarter of this year, even after the negative impact of the high fuel price. We expect to deliver a 2011 full-year operating profit of around double the year 2010 profits," IAG's Chief Executive Willie Walsh said. He added that the airline had seen softening demand in October, with premium and non-premium traffic up 1.9 pc - a slower rate of growth than in prior months. (c) Reuters

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